2022 (11) TMI 1102 - AT - Income Tax

Gain on sale of land - nature of land sold - capital asset u/s 2(14) - HELD THAT - We find that before the lower authorities, the objection of the assessee was regarding the applicability of provisions of capital gain as the sale of land in question was claimed to be an agricultural land. Also seen from the records that the AO has not carried out any inquiry to verify the claim of the assessee that the land in question was not capital asset on the ground that the population of the town was less than ten thousand and also as per the Notification issued by Government of India, the land was beyond the municipal limit. These issues require examination at the end of the AO. It is evident from the records that the AO had not carried out any inquiry to verify the correctness of the contention that the land in question would not fall within the purview of capital asset. We therefore, set aside the impugned order and restore the issue to the file of AO to decide it afresh. Needless to say that the AO would afford adequate opportunity to the assessee to prove his claim that the immovable properties that were sold by him during the year under consideration did not fall within the definition of capital asset as provided u/s 2(14) of the Act. Thus, grounds raised by the assessee are allowed for statistical purposes.

Summary

Issues involved:
Assessment of capital gains on sale of agricultural land without proper inquiry by the Assessing Officer.

Analysis:
1. The appellant contested the additions made by the Income Tax Officer (ITO) totaling Rs. 32,31,049.00 without a thorough examination of the case's facts, questioning the lack of satisfactory findings for income escaping assessment, failure to acknowledge the sale of agricultural land, and incorrect application of Capital Gains tax on the land. Additionally, the appellant argued that the order was legally flawed, not aligned with facts, and violated principles of Natural Justice.

2. The case originated from the assessee filing an income return declaring Rs. 7,83,710/-, which was later reopened under section 147 of the Income Tax Act due to information on property purchases. The AO, after receiving explanations from the assessee, made additions of Rs. 4,80,329/- as Long Term Capital Gain (LTCG), Rs. 27,50,720/- as Short Term Capital Gain (STCG), and Rs. 2,260/- as unqualified dividend income. The CIT(A) upheld these additions, leading to the appeal before the ITAT.

3. During the appeal, the appellant argued that the immovable properties sold were not capital assets under section 2(14) of the Act, citing judgments from Punjab & Haryana High Court and Karnataka High Court. The appellant highlighted that the land was situated in a town with a population below 10,000, thus retaining its agricultural character. The Senior DR supported the lower authorities' decisions.

4. The ITAT observed that the AO failed to investigate whether the land in question qualified as a capital asset, considering factors like population and municipal limits. Consequently, the ITAT set aside the previous order, directing the AO to re-examine the issue. The AO was instructed to provide the appellant with a fair opportunity to substantiate the claim that the properties sold did not meet the definition of a capital asset as per section 2(14) of the Act. The appeal was allowed for statistical purposes.

5. In conclusion, the ITAT's judgment favored the appellant, emphasizing the necessity for a proper assessment of whether the sold properties constituted capital assets, particularly in the context of agricultural land situated outside municipal limits in a town with a population below 10,000. The decision highlighted the importance of conducting thorough inquiries before applying capital gains tax provisions.